Always buy in times of high uncertainty—as we are in now

How will Russia’s horrid Ukrainian war morph? Will oil prices stay sky-high? Are food shortages next? How much will the Monetary Authority of Singapore (MAS) tighten to combat decade-high inflation? What of China’s lockdowns?

Early in 2022, uncertainty soared globally—which stocks famously hate. On the surface, year-to-date gains in the Straits Times Index (STI) make the Singapore market seem immune. But you know the truth: The gains gloss over this year’s choppy churn that paralleled world markets' corrections, which continue. Don't despair, though. Markets have widely pre-priced this murky morass. Buy before the haze clears, boosting stocks.

The old adage that stocks hate uncertainty is true—but only partly. Stocks hate high and rising uncertainty. High but falling uncertainty, however, is a bull market's favourite fuel. That is coming.

Take Putin's vile invasion. That fallout added to early-year trauma, but doesn’t change my January forecast: a volatile first half before a big, relief rally later. Whilst the war's path remains unknown, crucial clarity is emerging on stocks' chief concern: energy. Hence, oil is more than 20 per cent below its early March peak and Asian gas futures have halved.

Markets have priced Western nations' mostly symbolic Russian energy sanctions, too, bringing some clarity. China and India are snapping up extra Russian crude at big discounts. Analysts think ships off Sungai Linggi are trafficking in it, too. Russian supply isn’t off the market—just diverted—bringing even more clarity. Putin is threatening to halt gas shipments to Poland and Bulgaria unless they pay in roubles, but Poland was prepared—the contract expires at the year-end anyway.

Yes, some energy uncertainty remains. Putin could stop flows broadly, but that would hit Russia hard—oil and gas are 36 per cent of its budget. A Russian energy ban in the European Union is possible, stirring fears of further price spikes. But German opposition helps markets see big bans are unlikely. Europe boosting Middle East, Indian and US diesel imports also shows markets how EU countries can navigate Russian bans. Each step forward reduces uncertainty, draining scare stories' power. Soon, energy prices will fall—or markets will acclimate to high prices, and move on.

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Central bank haze is also lifting. The MAS' 3 tightening moves since October—including April's double dose of re-centring the currency band and upping its appreciation path—bring local clarity. Meanwhile, the United States started hiking interest rates in March and will soon begin to shrink its balance sheet. And the European Central Bank has sped up the "tapering" of its quantitative easing. We will know the impact soon, with stocks enjoying the clarity.

China's Covid lockdowns are unpredictable. But their economic impact is clear. Markets know shutdowns' sharp slowdowns reverse fast when restrictions lift. This just happened in Japan, where purchasing managers' indices jumped from contraction in February to expansion in March after Omicron restrictions relaxed. Singapore's restriction removal means a similar bump awaits.

Politically, Singapore's succession now seems clear. Later this year, another huge uncertainty domino falls: America's midterm congressional elections. Shrill campaign rhetoric typically spikes unease early in midterm years—hampering stocks globally. But the president's party routinely loses relative power in midterms, bringing bullish gridlock. That is near-certain in 2022 given US President Joe Biden’s Democrats hold historically razor-thin majorities in both houses.

Hardcore gridlock is stocks' ultimate political uncertainty remedy. It renders governments incapable of passing big, controversial legislation. Big bills create winners and losers, spooking investors because—as behavioural psychology documents—people hate losses hugely more than they love gains. Gridlock lets companies know the rules won't change much, making them more comfortable deploying capital. Stocks love it.

Rigid political biases blind most to US midterms' gridlock market magic. But stocks regularly price that reality in the year's back half. US markets climbed in 83 per cent of midterm fourth quarters since good data start in 1925, with that rally continuing all the next year. The STI’s 0.6 historical correlation with US stocks—strong, given 1.0 means lockstep movement and -1.0 signals polar opposites—means Singapore benefits, too. Old, pre-priced headwinds—inflation, Ukraine, Covid—lack sufficient surprise power to prevent a repeat.

Near term, some wild wiggles could remain. Don't let them sway you. Trying to time short-term swings is impossible—and unnecessary. Over the 20 years through Q1's close, the STI and world stocks have returned 261 per cent and 226 per cent, respectively. That includes every stomach-churning bear market, -10 to -20 per cent correction and dip.

Uncertainty never fully vanishes, so remember the old saying: "If you want clarity, the stock market is a very expensive place to get it." Once certainty or even increased clarity arrives, stocks are routinely far higher than when foggy futures reigned. The rebound usually starts much sooner—and faster—than people expect. Buy whilst the haziness remains, to be doubly happy when it clears.

The writer is the founder, executive chairman and co-chief investment officer of Fisher Investments, an independent investment adviser serving both individual and institutional investors globally.